Market for residential land remains heated

The market for residential land last year was hot enough that Mark Krueger of Grubb & Ellis NCG in Reno ranked second in land sales among more than 500 Grubb & Ellis broker nationwide.

Things are staying just as hot this year maybe even hotter and the market shows no signs of weakening into 2005, says Krueger.

The much-documented shortage of land for development in the Truckee Meadows is one of the key factors keeping demand strong.

But equally important, Krueger said in an interview last week, is the fact that homebuilders are able to pass higher land prices on to consumers.

"Land is going up faster than it ever has, but house prices are matching it," he said.

He estimated land prices will rise 25 percent this year after an 18 percent rise during 2003.

Low interest rates and strong population growth keep the demand for new houses strong, and homebuilders maintain waiting lists of buyers.

"A lot of the risk is out of the housesale end of the business, so builders can comfortably pay more for the land," Krueger said.

A third factor buoying the market is the entrant of well-heeled national homebuilders into the market.

Recent months saw the entry in the Reno market of Lennar Corp., the Del Webb unit of Pulte Homes, D.R.

Horton and Toll Brothers all of them publicly held national homebuilders.

Other national builders continue to look carefully at northern Nevada and may be on their way, Krueger said.

Those well-capitalized companies are willing to pay premium prices to get into the northern Nevada market.

In fact, Krueger said, some of the new players in the market are buying land from established regional homebuilders who find the prices they're offered irresistible as long as they have enough vacant land to meet their own needs.

Regional homebuilders and national homebuilders alike find no shortage of work.

About 3,500 new houses were built in the Reno-Sparks area last year, and Krueger projects the number will rise to 4,000 this year.

That increase means that waiting lists will shorten in the second half of the year, Krueger said, especially as construction hits full throttle in south Reno's Curti Ranch and Damonte Ranch as well as Somersett in northwest Reno.

Higher land prices which translate into home prices that typically start at about $200,000 for basic models continue to push entry-level construction to Fernley, Dayton and other outlying areas.

Krueger said those markets also are beginning to see construction of move-up homes as well.

Higher land prices also are translating into higher-density projects in Sparks and Reno.

"'Attached' was a bad word even a year and half or two years ago," Krueger said.

"Now buyers are lining up for condominiums, townhomes and duplexes."

Yet another trend resulting from higher prices is increased numbers of in-fill projects.

It's beginning to make sense, Krueger said, to demolish existing buildings to create building lots.

Development of smaller vacant parcels is becoming more profitable as well.

Other homebuilders are beginning to look at hillside land property that's a challenge to builders around the edges of the Truckee Meadows bowl.

Those moves may be limited, however, by political opposition to hillside development.

At the current pace of building, Krueger estimates the Reno-Sparks area has about a six- to seven-year inventory of land.

He projects that the current strong demand will carry homebuilders well into 2005 as the region's strong job growth combines with migration of retirees and others from California.

But he cautions that there are no guarantees the region will continue building 4,000 homes a year forever.

"The interest rates, the economy ... Anything can change this picture about as quickly as it turned upward," Krueger said.